How to Maintain Firm's Efficiency in Terms of Profit Generation?

Maintaining Firm's Efficiency in Terms of Profit Generation in not an easy task. Efficiency is the ratio of output to the input. A manager has not only to perform and produce results, but to do so in the most efficient manner possible. To produce results a manager requires inputs in the form of money, men, materials and machines. The more output that the manager can produce with the same input, the greater will be the profit generated. Profit is the surplus or difference the manager can generate between the value of inputs and outputs.

Profit is essential for the survival and growth of a business. A manager may decide to forego some profit today for the profits which he is seeking tomorrow but in the long run he must understand that no business can survive if it does not make profits Business activity is undertaken to satisfy a need of the society in a manner which yields profits. A business is not a philanthropic or charitable activity which is run merely to provide some goods and services irrespective of whether it is making a profit.

Profit generated can be used for expansion, upgrading of technology, growth or paying dividends. Profits are one of the cheapest sources of financing growth, as they involve no interest liability nor putting the freedom at stake by having representatives of financial institutions sit on your board of directors. Profit gives you the cushion to take risk, think big and venture into relatively unknown areas.

A profitable firm can turn unprofitable because of obsolete technology, inability to meet high fixed cost structures, high levels of wastage, or simply because the product is no longer in demand by customers. We have illustrated how the traditional textile mills became unprofitable and the fate they eventually met. A similar fate awaits all unprofitable businesses. The consistent failure of, Engineering Projects India, a public sector company, to generate profits and. execute international projects within the time limits has threatened the very existence of this company.

In contrast, companies such as Colgate-Palmolive, Tata Engineering and Locomotive Company (TELCO), Century Enka, Richardson Hindustan Limited, etc. has been showing consistently good profits.